Pacific Money

Asia’s Clean Energy Future

With a huge demand for energy resources, China and Asia overall are poised to become global leaders in clean energy.

China and Asia are emerging as the epicenter of the world’s race for clean energy investment, according to Pew Charitable Trusts.

Beijingers may be living under a black cloud but investors appear to be placing their faith in China to lead the way on developing clean energy. In its annual report on global investment in clean energy, Pew Charitable Trusts writes, “The competition among countries for clean energy leadership is resulting in a reshuffling of the old order. In 2012, China advanced its position as the epicenter of clean energy finance, attracting $65.1 billion in investment, 20 percent more than in 2011.”

This is particularly remarkable when measured in relative terms. For instance, the investment that flowed into China last year accounted for nearly a third of all clean energy investment in G-20 nations. A quarter of the world’s total investment in solar energy in 2012 went to China, while China was also the destination for 37 percent of wind power investment globally. For the remaining clean energy technologies, China’s comprised just under half (47 percent) of the world’s total investment. As a result China clean energy capacity rose by 23 GW to 152 GW overall, which is equivalent to 23 percent of the world’s total.

By comparison, investment in clean energy in the U.S. last year was down 37 percent, to $35.6 billion. Although this was the second highest-level in the G-20, it was a very distant second place.

Overall the Asia-Pacific appears to be the place where clean energy’s future will be made. “In 2012, Asia became the leading regional destination for clean energy investment for the first time. Investment in the region grew 16 percent, to $101 billion, accounting for 42 percent of the global total,” the report said.

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This surge in regional clean energy investment was driven almost entirely by Northeast Asia. In the wake of the 3/11 disaster Japan saw its clean energy investment grow by 75 percent in 2012, to $16.3 billion. This was the fifth-highest total in the G-20. South Korea also saw its clean energy investment increase by 50 percent to US$ 900 million.

By contrast, other parts of Asia saw a decline in clean energy investment. In some countries this was rather small. Australia, for instance, saw a decline of 7 percent. Other countries saw substantial declines. Investment in India’s clean energy sector fell by 45 percent in 2012 while Indonesia—which had witnessed a sharp increase in 2011— subsequently fell 82 percent last year. As a result Indonesia went from having the 14th highest investment level among G-20 nations in 2011 to just 19th last year.

It’s reasonable to assume that Asia will continue to dominate clean energy investment in the years ahead although China’s role in this could decline. One reason Asia is likely to have a bright future in clean energy is simply because of its voracious energy demand and comparable limited energy resources. Another factor that will work in Asia’s benefit is that investment in North America’s clear energy sector is unlikely to grow very much in the near future as most investors remain cautious as they monitor how the shale gas and oil revolutions will affect demand for clean energies on the continent. Moreover, given the EU’s continuing economic difficulties its energy demand is likely to remain stable or decline, reducing the incentives governments and private investors have for investing in clean energy.

There is good reason to think that clean energy investment will continue to flow into China given its growing pollution issues and energy demand. At the same time, it would not be surprising to see some private investors grow cautious in the short term in light of the Chinese government’s apparent decision to make solar companies the test cases for the modern default process in Chinese financial markets. At the very least it seems likely that the Chinese government’s investment in solar companies is likely to tamper off this year.

Zachary Keck serves as assistant editor of The Diplomat.